contestada

You are thinking about investing in a mine that will produce $10,000 worth of ore in the first year. As the ore closest to the surface is removed it will become more difficult to extract the ore. Therefore, the value of the ore that you mine will decline at a rate of 8% per year forever. If the appropriate interest rate is 6%, then the value of this mining operation is closest to:

Respuesta :

jepessoa

Answer:

$71,428.57

Explanation:

we can use the perpetuity formula to solve this question:

present value = future cash flow / (discount rate - g)

  • future cash flow = $10,000
  • discount rate = 6%
  • g = growth rate = -8%

present value = $10,000 / (6% - - 8%) = $10,000 / 14% = $71,428.57

ogorwyne

The value of the mining operation is closest to $71.429

The cash flow here = $10000

The decline rate of growth =  -8% per year

The interest rate = 6%

The formula that is used to get the value of mining operation is given as:

[tex]Value of MiningOperation=\frac{CashFlow}{Rate-Growth}[/tex]

[tex]Value of mining = \frac{10000}{0.06-(-0.08)} \\\\= \frac{10000}{0.06+0.08} \\\\=\frac{10000}{0.14} \\\\= $71.428.6[/tex]

Therefore The value of the mining operation is closest to $71.429

Read more on https://brainly.com/question/21437864?referrer=searchResults

Otras preguntas